Highlights:
- Third quarter revenue increased 20% year-over-year to $416.9
million
- Third quarter GAAP operating loss of $55.4 million and non-GAAP
operating income of $48.9 million
- GAAP operating loss includes restructuring expenses of $10.2
million and merger-related costs and other expenses of $6.6
million
Zendesk, Inc. (NYSE: ZEN) today reported financial results for
the third quarter ended September 30, 2022.
Results for the Third Quarter 2022
Revenue was $416.9 million for the quarter ended September 30,
2022, an increase of 20% over the prior year period. GAAP net loss
for the quarter ended September 30, 2022 was $59.1 million, and
GAAP net loss per share (basic and diluted) was $0.48. Non-GAAP net
income was $39.4 million, and non-GAAP net income per share was
$0.32 (basic) and $0.28 (diluted). Non-GAAP net income excludes
approximately $81.7 million in share-based compensation and related
expenses (including $1.3 million of employer tax related to
employee stock transactions and $0.4 million of amortization of
share-based compensation capitalized in internal-use software),
$10.2 million of restructuring expenses, $6.6 million of
merger-related costs and other expenses, $2.8 million of real
estate impairments, $1.8 million of amortization of purchased
intangibles, $1.2 million of acquisition-related expenses, and $1.2
million of amortization of debt issuance costs, and includes
non-GAAP income tax effects and adjustments of $7.0 million. GAAP
net loss per share for the quarter ended September 30, 2022 was
based on 123.6 million weighted average shares outstanding (basic
and diluted), and non-GAAP net income per share for the quarter
ended September 30, 2022 was based on 123.6 million weighted
average shares outstanding (basic) and 138.3 million weighted
average shares outstanding (diluted).
Transaction with Private Equity Consortium
Due to Zendesk’s pending acquisition by an investor group led by
leading investment firms Hellman & Friedman Advisors LLC and
Permira Advisers LLC that was announced on June 24, 2022, the
Company will not be holding a conference call or live webcast to
discuss Zendesk’s financial results for the third quarter ended
September 30, 2022, or providing a Shareholder Letter for such
period. In addition, the Company is suspending its financial
guidance for the year ending December 31, 2022 in light of the
pending transaction.
About Zendesk
Zendesk started the customer experience revolution in 2007 by
enabling any business around the world to take their customer
service online. Today, Zendesk is the champion of great service
everywhere for everyone, and powers billions of conversations,
connecting more than 100,000 brands with hundreds of millions of
customers over telephony, chat, email, messaging, social channels,
communities, review sites and help centers. Zendesk products are
built with love to be loved. The Company was conceived in
Copenhagen, Denmark, built and grown in California, taken public in
New York City, and today employs more than 6,000 people across the
world. Learn more at www.zendesk.com.
References to Zendesk, the “Company,” “our,” or “we” in this
press release refer to Zendesk, Inc. and its subsidiaries on a
consolidated basis.
Forward-Looking Statements
This press release contains forward-looking statements,
including, among other things, statements regarding Zendesk’s
future financial performance, its continued investment to grow its
business, progress toward its long-term financial objectives, and
the proposed transaction. Words such as “may,” “should,” “will,”
“believe,” “expect,” “anticipate,” “target,” “project,” and similar
phrases that denote future expectation or intent regarding
Zendesk’s financial results, operations, and other matters are
intended to identify forward-looking statements. You should not
rely upon forward-looking statements as predictions of future
events.
The outcome of the events described in these forward-looking
statements is subject to known and unknown risks, uncertainties,
and other factors that may cause Zendesk’s actual results,
performance, or achievements to differ materially, including (i)
Zendesk’s ability to adapt its products to changing market dynamics
and customer preferences or achieve increased market acceptance of
its products; (ii) the intensely competitive market in which
Zendesk operates; (iii) the development of the market for software
as a service business software applications; (iv) Zendesk’s
substantial reliance on its customers renewing their subscriptions
and purchasing additional subscriptions; (v) Zendesk’s ability to
effectively market and sell its products to larger enterprises;
(vi) Zendesk’s ability to develop or acquire and market new
products and to support its products on a unified, reliable shared
services platform; (vii) Zendesk’s reliance on third-party
services, including services for hosting, email, and messaging;
(viii) Zendesk’s ability to retain key employees and attract
qualified personnel, particularly in the primary regions Zendesk
operates; (ix) Zendesk’s ability to effectively manage its growth
and organizational change, including its international expansion
strategy; (x) Zendesk’s expectation that the future growth rate of
its revenues will decline, and that, as its costs increase, Zendesk
may not be able to generate sufficient revenues to achieve or
sustain profitability; (xi) Zendesk’s ability to integrate acquired
businesses and technologies successfully or achieve the expected
benefits of such acquisitions; (xii) real or perceived errors,
failures, or bugs in Zendesk’s products; (xiii) potential service
interruptions or performance problems associated with Zendesk’s
technology and infrastructure; (xiv) Zendesk’s ability to securely
maintain customer data and prevent, mitigate, and respond
effectively to both historical and future data breaches; (xv)
Zendesk’s ability to comply with privacy and data security
regulations; (xvi) Zendesk’s ability to optimize the pricing for
its solutions; (xvii) other adverse changes in general economic or
market conditions; and (xviii) known and unknown risks,
uncertainties, and other factors related to the proposed
transaction, including: the timing, receipt and terms and
conditions of any required governmental and regulatory approvals of
the proposed transaction that could reduce anticipated benefits or
cause the parties to abandon the proposed transaction; the
occurrence of any event, change or other circumstances that could
give rise to the termination of the merger agreement entered into
pursuant to the proposed transaction; the risk that the parties to
the merger agreement may not be able to satisfy the conditions to
the proposed transaction in a timely manner or at all; risks
related to disruption of management time from ongoing business
operations due to the proposed transaction; the risk that any
announcements relating to the proposed transaction could have
adverse effects on the market price of Zendesk’s common stock; the
risk of any unexpected costs or expenses resulting from the
proposed transaction; the risk of any litigation relating to the
proposed transaction; the risk that the proposed transaction and
its announcement could have an adverse effect on the ability of
Zendesk to retain customers and retain and hire key personnel and
maintain relationships with customers, suppliers, employees,
stockholders and other business relationships and on its operating
results and business generally; and the risk the pending proposed
transaction could distract management of Zendesk.
The forward-looking statements contained in this press release
are also subject to additional risks, uncertainties, and factors,
including those more fully described in Zendesk’s filings with the
Securities and Exchange Commission, including its Annual Report on
Form 10-K for the year ended December 31, 2021. Further information
on potential risks that could affect actual results will be
included in the subsequent periodic and current reports and other
filings that Zendesk makes with the Securities and Exchange
Commission from time to time, including its Quarterly Report on
Form 10-Q for the quarter ended September 30, 2022.
Forward-looking statements represent Zendesk’s management’s
beliefs and assumptions only as of the date such statements are
made. Zendesk undertakes no obligation to update any
forward-looking statements made in this press release to reflect
events or circumstances after the date of this press release or to
reflect new information or the occurrence of unanticipated events,
except as required by law.
Condensed Consolidated Statements of
Operations
(In thousands, except per share data;
unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
Revenue
$
416,861
$
346,974
$
1,212,396
$
963,238
Cost of revenue
79,462
70,226
237,930
197,863
Gross profit
337,399
276,748
974,466
765,375
Operating expenses:
Research and development
105,203
92,112
323,819
248,721
Sales and marketing
211,593
172,828
622,413
495,596
General and administrative
76,030
50,716
236,778
139,667
Total operating expenses
392,826
315,656
1,183,010
883,984
Operating loss
(55,427
)
(38,908
)
(208,544
)
(118,609
)
Other income (expense), net:
Interest expense
(3,131
)
(14,762
)
(9,373
)
(43,768
)
Interest and other income (expense),
net
2,913
2,386
5,845
8,430
Total other income (expense), net
(218
)
(12,376
)
(3,528
)
(35,338
)
Loss before provision for income taxes
(55,645
)
(51,284
)
(212,072
)
(153,947
)
Provision for income taxes
3,448
3,133
9,049
7,842
Net loss
$
(59,093
)
$
(54,417
)
$
(221,121
)
$
(161,789
)
Net loss per share, basic and diluted
$
(0.48
)
$
(0.45
)
$
(1.80
)
$
(1.36
)
Weighted-average shares used to compute
net loss per share, basic and diluted
123,576
120,164
122,799
119,050
Condensed Consolidated Balance
Sheets
(In thousands, except par value;
unaudited)
September 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents
$
707,047
$
476,103
Marketable securities
630,763
539,780
Accounts receivable, net of allowance for
credit losses of $6,169 and $6,190 as of September 30, 2022 and
December 31, 2021, respectively
217,831
273,898
Deferred costs
85,700
72,042
Prepaid expenses and other current
assets
75,728
56,809
Total current assets
1,717,069
1,418,632
Marketable securities, noncurrent
322,946
559,652
Property and equipment, net
86,799
97,815
Deferred costs, noncurrent
76,414
72,553
Lease right-of-use assets
44,260
69,936
Goodwill and intangible assets, net
191,791
197,098
Other assets
36,880
35,593
Total assets
$
2,476,159
$
2,451,279
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
42,553
$
49,213
Accrued liabilities
77,664
50,075
Accrued compensation and related
benefits
114,633
138,127
Deferred revenue
532,889
512,933
Lease liabilities
19,965
21,253
Current portion of convertible senior
notes, net
148,865
139,738
Total current liabilities
936,569
911,339
Convertible senior notes, net
1,138,472
979,350
Deferred revenue, noncurrent
5,558
4,277
Lease liabilities, noncurrent
45,902
63,212
Other liabilities
2,795
3,883
Total liabilities
2,129,296
1,962,061
Stockholders’ equity:
Preferred stock, par value $0.01 per
share
—
—
Common stock, par value $0.01 per
share
1,238
1,215
Additional paid-in capital
1,651,518
1,637,157
Accumulated other comprehensive loss
(25,643
)
(8,911
)
Accumulated deficit
(1,280,250
)
(1,140,243
)
Total stockholders’ equity
346,863
489,218
Total liabilities and stockholders’
equity
$
2,476,159
$
2,451,279
Condensed Consolidated Statements of
Cash Flows
(In thousands; unaudited)
Three Months Ended September
30,
2022
2021
Cash flows from operating
activities
Net loss
$
(59,093
)
$
(54,417
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization
9,072
9,330
Share-based compensation
79,959
59,533
Amortization of deferred costs
22,980
17,797
Amortization of debt discount and issuance
costs
1,227
12,866
Real estate impairments
3,455
—
Allowance for credit losses on accounts
receivable
2,664
1,704
Other, net
148
1,118
Changes in operating assets and
liabilities:
Accounts receivable
36,836
15,231
Prepaid expenses and other current
assets
2,028
(7,646
)
Deferred costs
(23,796
)
(22,595
)
Lease right-of-use assets
3,497
4,058
Other assets and liabilities
(244
)
(2,038
)
Accounts payable
(27,925
)
12,927
Accrued liabilities
14,992
3,910
Accrued compensation and related
benefits
4,138
22,020
Deferred revenue
(33,367
)
5,571
Lease liabilities
(6,633
)
(5,559
)
Net cash provided by operating
activities
29,938
73,810
Cash flows from investing
activities
Purchases of property and equipment
(2,164
)
(5,073
)
Internal-use software development
costs
(2,334
)
(3,299
)
Purchases of marketable securities
(33,731
)
(213,786
)
Proceeds from maturities of marketable
securities
99,616
209,980
Proceeds from sales of marketable
securities
40,410
44,934
Business combinations, net of cash
acquired
—
(7,811
)
Purchases of strategic investments
(500
)
(1,000
)
Proceeds from sales of strategic
investments
—
1,008
Net cash provided by investing
activities
101,297
24,953
Cash flows from financing
activities
Proceeds from exercises of employee stock
options
3,273
3,754
Proceeds from employee stock purchase
plan
6,650
10,358
Taxes paid related to net share settlement
of share-based awards
(1,552
)
(2,638
)
Net cash provided by financing
activities
8,371
11,474
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(104
)
(14
)
Net increase in cash, cash equivalents and
restricted cash
139,502
110,223
Cash, cash equivalents and restricted cash
at beginning of period
569,694
423,248
Cash, cash equivalents and restricted
cash at end of period
$
709,196
$
533,471
Non-GAAP Results
(In thousands, except per share data)
The following table shows Zendesk’s GAAP
results reconciled to non-GAAP results included in this
release.
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
Reconciliation of gross profit and
gross margin
GAAP gross profit
$
337,399
$
276,748
$
974,466
$
765,375
Plus: Share-based compensation
7,053
5,343
20,212
15,047
Plus: Employer tax related to employee
stock transactions
104
187
490
967
Plus: Amortization of purchased
intangibles
1,178
1,095
3,533
3,450
Plus: Acquisition-related expenses
—
37
—
161
Plus: Amortization of share-based
compensation capitalized in internal-use software
415
373
1,252
1,144
Non-GAAP gross profit
$
346,149
$
283,783
$
999,953
$
786,144
GAAP gross margin
81
%
80
%
80
%
79
%
Non-GAAP adjustments
2
%
2
%
2
%
3
%
Non-GAAP gross margin
83
%
82
%
82
%
82
%
Reconciliation of operating
expenses
GAAP research and development
$
105,203
$
92,112
$
323,819
$
248,721
Less: Share-based compensation
(22,885
)
(17,189
)
(62,654
)
(49,886
)
Less: Employer tax related to employee
stock transactions
(410
)
(617
)
(1,945
)
(3,126
)
Less: Acquisition-related expenses
(1,004
)
(1,297
)
(3,641
)
(3,076
)
Less: Amortization of share-based
compensation capitalized in internal-use software
(17
)
(17
)
(51
)
(51
)
Non-GAAP research and development
$
80,887
$
72,992
$
255,528
$
192,582
GAAP research and development as
percentage of revenue
25
%
27
%
27
%
26
%
Non-GAAP research and development as
percentage of revenue
19
%
21
%
21
%
20
%
GAAP sales and marketing
$
211,593
$
172,828
$
622,413
$
495,596
Less: Share-based compensation
(35,014
)
(24,915
)
(92,934
)
(72,648
)
Less: Employer tax related to employee
stock transactions
(655
)
(739
)
(2,843
)
(4,193
)
Less: Amortization of purchased
intangibles
(642
)
(642
)
(1,926
)
(1,926
)
Less: Acquisition-related expenses
(1
)
(262
)
(375
)
(374
)
Non-GAAP sales and marketing
$
175,281
$
146,270
$
524,335
$
416,455
GAAP sales and marketing as percentage of
revenue
51
%
50
%
51
%
51
%
Non-GAAP sales and marketing as percentage
of revenue
42
%
42
%
43
%
43
%
GAAP general and administrative
$
76,030
$
50,716
$
236,778
$
139,667
Less: Share-based compensation
(15,007
)
(12,086
)
(41,456
)
(31,020
)
Less: Employer tax related to employee
stock transactions
(164
)
(510
)
(1,144
)
(2,798
)
Less: Acquisition-related expenses
(157
)
(636
)
(10,003
)
(1,099
)
Less: Amortization of share-based
compensation capitalized in internal-use software
(7
)
—
(7
)
—
Less: Real estate impairments
(2,763
)
65
(27,671
)
(1,111
)
Less: Merger-related costs and other
expenses
(6,620
)
—
(18,833
)
—
Less: Restructuring expenses
(10,184
)
—
(10,184
)
—
Non-GAAP general and administrative
$
41,128
$
37,549
$
127,480
$
103,639
GAAP general and administrative as
percentage of revenue
18
%
15
%
20
%
14
%
Non-GAAP general and administrative as
percentage of revenue
10
%
11
%
11
%
11
%
Three Months Ended September
30,
Nine Months Ended September
30,
2022
2021
2022
2021
Reconciliation of operating income
(loss) and operating margin
GAAP operating loss
$
(55,427
)
$
(38,908
)
$
(208,544
)
$
(118,609
)
Plus: Share-based compensation
79,959
59,533
217,256
168,601
Plus: Employer tax related to employee
stock transactions
1,333
2,053
6,422
11,084
Plus: Amortization of purchased
intangibles
1,820
1,737
5,459
5,376
Plus: Acquisition-related expenses
1,162
2,232
14,019
4,710
Plus: Amortization of share-based
compensation capitalized in internal-use software
439
390
1,310
1,195
Plus: Real estate impairments
2,763
(65
)
27,671
1,111
Plus: Merger-related costs and other
expenses
6,620
—
18,833
—
Plus: Restructuring expenses
10,184
—
10,184
—
Non-GAAP operating income
$
48,853
$
26,972
$
92,610
$
73,468
GAAP operating margin
(13
) %
(11
) %
(17
) %
(12
) %
Non-GAAP adjustments
25
%
19
%
25
%
20
%
Non-GAAP operating margin
12
%
8
%
8
%
8
%
Reconciliation of net income
(loss)
GAAP net loss
$
(59,093
)
$
(54,417
)
$
(221,121
)
$
(161,789
)
Plus: Share-based compensation
79,959
59,533
217,256
168,601
Plus: Employer tax related to employee
stock transactions
1,333
2,053
6,422
11,084
Plus: Amortization of purchased
intangibles
1,820
1,737
5,459
5,376
Plus: Acquisition-related expenses
1,162
2,232
14,019
4,710
Plus: Amortization of share-based
compensation capitalized in internal-use software
439
390
1,310
1,195
Plus: Real estate impairments
2,763
(65
)
27,671
1,111
Plus: Merger-related costs and other
expenses
6,620
—
18,833
—
Plus: Restructuring expenses
10,184
—
10,184
—
Plus: Amortization of debt discount and
issuance costs
1,227
12,865
3,673
38,085
Less: Income tax effects and
adjustments
(7,024
)
(2,634
)
(10,430
)
(8,163
)
Non-GAAP net income
$
39,390
$
21,694
$
73,276
$
60,210
Reconciliation of net income (loss) per
share, basic
GAAP net loss per share, basic
$
(0.48
)
$
(0.45
)
$
(1.80
)
$
(1.36
)
Non-GAAP adjustments to net loss
0.80
0.63
2.40
1.87
Non-GAAP net income per share, basic
$
0.32
$
0.18
$
0.60
$
0.51
Reconciliation of net income (loss) per
share, diluted
GAAP net loss per share, diluted
$
(0.48
)
$
(0.45
)
$
(1.80
)
$
(1.36
)
Non-GAAP adjustments to net loss
0.76
0.62
2.33
1.83
Non-GAAP net income per share, diluted
$
0.28
$
0.17
$
0.53
$
0.47
Weighted-average shares used in GAAP per
share calculation, basic and diluted
123,576
120,164
122,799
119,050
Weighted-average shares used in non-GAAP
per share calculation
Basic
123,576
120,164
122,799
119,050
Diluted (1)
138,334
126,887
137,912
127,234
Computation of free cash flow
Net cash provided by operating
activities
$
29,938
$
73,810
$
90,175
$
134,283
Less: Purchases of property and
equipment
(2,164
)
(5,073
)
(15,014
)
(11,030
)
Less: Internal-use software development
costs
(2,334
)
(3,299
)
(8,230
)
(10,837
)
Free cash flow
$
25,440
$
65,438
$
66,931
$
112,416
Net cash provided by operating activities
margin
7
%
21
%
7
%
14
%
Non-GAAP adjustments
(1
) %
(2
) %
(1
) %
(2
) %
Free cash flow margin
6
%
19
%
6
%
12
%
(1) In the first quarter of 2022, we adopted ASU 2020-06, which
simplifies the accounting for convertible debt. Under the new
standard, companies are required to use the if-converted method for
calculating diluted EPS instead of the treasury stock method. For
the three and nine months ended September 30, 2022, approximately
13 million shares related to our convertible notes were included in
the diluted share amount using the if-converted method.
About Non-GAAP Financial Measures
To provide investors and others with additional information
regarding Zendesk’s results, the following non-GAAP financial
measures were disclosed: non-GAAP gross profit and gross margin,
non-GAAP operating expenses, non-GAAP operating income (loss) and
operating margin, non-GAAP net income (loss), non-GAAP net income
(loss) per share, basic and diluted, free cash flow, and free cash
flow margin.
Specifically, Zendesk excludes the following from its historical
and prospective non-GAAP financial measures, as applicable:
Share-Based Compensation and Amortization of Share-Based
Compensation Capitalized in Internal-Use Software: Zendesk utilizes
share-based compensation to attract and retain employees. It is
principally aimed at aligning their interests with those of its
stockholders and at long-term retention, rather than to address
operational performance for any particular period. As a result,
share-based compensation expenses vary for reasons that are
generally unrelated to financial and operational performance in any
particular period.
Employer Tax Related to Employee Stock Transactions: Zendesk
views the amount of employer taxes related to its employee stock
transactions as an expense that is dependent on its stock price,
employee exercise and other award disposition activity, and other
factors that are beyond Zendesk’s control. As a result, employer
taxes related to its employee stock transactions vary for reasons
that are generally unrelated to financial and operational
performance in any particular period.
Amortization of Purchased Intangibles: Zendesk views
amortization of purchased intangible assets, including the
amortization of the cost associated with an acquired entity’s
developed technology, as items arising from pre-acquisition
activities determined at the time of an acquisition. While these
intangible assets are evaluated for impairment regularly,
amortization of the cost of purchased intangibles is an expense
that is not typically affected by operations during any particular
period.
Acquisition-Related Expenses: Zendesk views acquisition-related
expenses, such as transaction costs, integration costs,
restructuring costs, and acquisition-related retention payments,
including amortization of acquisition-related retention payments
capitalized in internal-use software, as events that are not
necessarily reflective of operational performance during a period.
In particular, Zendesk believes the consideration of measures that
exclude such expenses can assist in the comparison of operational
performance in different periods which may or may not include such
expenses.
Real Estate Impairments: To support an increased percentage of
remote teams, Zendesk records impairments for certain assets
associated with leased properties, or portions thereof, that it
ceases to occupy. Any losses and gains associated with these
activities are generally unrelated to financial and operational
performance in any particular period and Zendesk believes the
exclusion of such losses and gains provides for a more useful
comparison of operational performance in comparative periods that
may or may not include such losses and gains.
Merger-Related Costs and Other Expenses: Zendesk views fees
related to its pending acquisition, including transaction costs, as
events that are not necessarily reflective of operational
performance during a period. Zendesk believes the consideration of
measures that exclude such expenses provides meaningful
supplemental information regarding operational performance. Other
expenses include non-recurring fees paid for third-party advisory
and professional services related to shareholder activism and the
strategic review.
Restructuring Expenses: Zendesk views restructuring expenses,
such as employee severance-related costs, professional fees, and
other costs associated with significant changes to its operations
as events that are not necessarily reflective of operational
performance during a period. Zendesk believes the consideration of
measures that exclude such expenses can assist in the comparison of
operational performance in different periods which may or may not
include such expenses.
Amortization of Debt Discount and Issuance Costs: On January 1,
2022, Zendesk prospectively adopted ASU 2020-06, regarding ASC
Topic 470 “Debt” and ASC Topic 815 “Derivatives and Hedging,” which
simplifies the accounting for convertible debt. Prior to the
adoption of ASU 2020-06, the imputed interest rates of our 2023
convertible notes and our 2025 notes were approximately 5.26% and
5.00%, respectively. This was a result of the debt discounts
recorded for the conversion features of the notes that were
required to be separately accounted for as equity, and debt
issuance costs, which reduced the carrying value of the convertible
debt instruments. The debt discounts were amortized as interest
expense together with the issuance costs of the debt. Upon adoption
of the new standard, the liability and equity components of each
instrument were recombined into a single liability instrument
measured at amortized cost. As a result, from the date of adoption,
no debt discount remains and no interest expense related to debt
discount amortization will be recorded. Interest expense related to
the amortization of debt issuance costs will continue to be
recorded over the term of the notes. The expense for the
amortization of debt discount and debt issuance costs is a non-cash
item, and we believe the exclusion of this expense will provide for
a more useful comparison of our operational performance in
different periods.
Income Tax Effects: Zendesk utilizes a fixed long-term projected
tax rate in its computation of non-GAAP income tax effects to
provide better consistency across interim reporting periods. In
projecting this long-term non-GAAP tax rate, Zendesk utilizes a
financial projection that excludes the direct impact of other
non-GAAP adjustments. The projected rate considers other factors
such as Zendesk’s current operating structure, existing tax
positions in various jurisdictions, and key legislation in major
jurisdictions where Zendesk operates. For the year ending December
31, 2022, Zendesk has determined the projected non-GAAP tax rate to
be 21%. Zendesk will periodically re-evaluate this tax rate, as
necessary, for significant events, based on relevant tax law
changes, material changes in the forecasted geographic earnings
mix, and any significant acquisitions.
Zendesk provides disclosures regarding its free cash flow, which
is defined as net cash from operating activities less purchases of
property and equipment and internal-use software development costs.
Free cash flow margin is calculated as free cash flow as a
percentage of total revenue. Zendesk uses free cash flow, free cash
flow margin, and other measures, to evaluate the ability of its
operations to generate cash that is available for purposes other
than capital expenditures and capitalized software development
costs. Zendesk believes that information regarding free cash flow
and free cash flow margin provides investors with an important
perspective on the cash available to fund ongoing operations.
Zendesk uses non-GAAP financial information to evaluate its
ongoing operations and for internal planning and forecasting
purposes. Zendesk’s management does not itself, nor does it suggest
that investors should, consider such non-GAAP financial measures in
isolation from, or as a substitute for, financial information
prepared in accordance with GAAP. Zendesk presents such non-GAAP
financial measures in reporting its financial results to provide
investors with an additional tool to evaluate Zendesk’s operating
results. Zendesk believes these non-GAAP financial measures are
useful because they allow for greater transparency with respect to
key metrics used by management in its financial and operational
decision-making. This allows investors and others to better
understand and evaluate Zendesk’s operating results and future
prospects in the same manner as management.
Zendesk’s management believes it is useful for itself and
investors to review, as applicable, both GAAP information that may
include items such as share-based compensation and related
expenses, amortization of debt discount and issuance costs,
amortization of purchased intangibles, acquisition-related
expenses, real estate impairments, merger-related costs and other
expenses, and restructuring expenses, and the non-GAAP measures
that exclude such information in order to assess the performance of
Zendesk’s business and for planning and forecasting in subsequent
periods. When Zendesk uses such a non-GAAP financial measure with
respect to historical periods, it provides a reconciliation of the
non-GAAP financial measure to the most closely comparable GAAP
financial measure. When Zendesk uses such a non-GAAP financial
measure in a forward-looking manner for future periods, and a
reconciliation is not determinable without unreasonable effort,
Zendesk provides the reconciling information that is determinable
without unreasonable effort and identifies the information that
would need to be added or subtracted from the non-GAAP measure to
arrive at the most directly comparable GAAP measure. Investors are
encouraged to review the related GAAP financial measures and the
reconciliation of these non-GAAP financial measures to their most
directly comparable GAAP financial measure as detailed above.
In August 2020, the Financial Accounting Standards Board issued
ASU 2020-06, regarding ASC Topic 470 “Debt” and ASC Topic 815
“Derivatives and Hedging,” which amends the calculation of diluted
earnings per share for certain convertible debt instruments, among
other changes. Under the new standard, Zendesk is required to use
the “if-converted” method to calculate diluted earnings per share
for its convertible debt, which assumes conversion of its
convertible debt instruments at the beginning of the reporting
period, with settlement entirely in shares of common stock, unless
the result would be anti-dilutive. Historically, Zendesk calculated
diluted earnings per share for its convertible debt using the
“treasury stock” method, which assumes that the principal amount of
convertible debt instruments is settled in cash. Accordingly, our
diluted shares outstanding are generally expected to increase under
the new standard. We adopted this standard in the first quarter of
2022. The total amount of shares underlying the convertible notes
is approximately 13 million. Refer to Form 10-Q for the quarter
ended September 30, 2022 for further information.
Source: Zendesk, Inc.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221027005994/en/
Zendesk, Inc. Investor Contact: Jason Tsai, +1
415-997-8882 ir@zendesk.com
or
Media Contact: Marissa Tree, +1 415-609-4510
press@zendesk.com
Zendesk (NYSE:ZEN)
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